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Wednesday, January 25, 2012

Why Singapore Has the Cleanest Government Money Can Buy: View - Bloomberg

Singapore’s prime minister, Lee Hsien Loong, isn’t often taken publicly to task. But when you make S$3.1 million ($2.4 million) annually to run a country, people tend to expect results. When they don’t get them, the aggrieved masses turn to that lowest-of-common-denominator gripes: Hey, how much are we paying this guy?
Lots compared with, say, Barack Obama, who as U.S. president gets $400,000 a year. Lee’s compensation will fall 36 percent, and that of Singapore’s president will drop 51 percent, to S$1.54 million. The cuts were based on the recommendations of an advisory committee formed three weeks after last May’s elections, when opposition party candidates made hay with the pay issue -- and the ruling People’s Action Party won with the narrowest margin since independence in 1965.
Such still-fat paychecks may give pause. Yet let’s applaud Singapore for what it’s trying to achieve by paying top salaries to leaders and ministers: attracting the best and brightest to public service and reducing the temptation to engage in graft. Done properly, such initiatives can make government more efficient and economies more vibrant. Transparency International has ranked Singapore among the world’s top five least-corrupt governments since 2001, and according to Worldwide Governance Indicators, an index supported by the World Bank, it has also been among the best governed.
Asia’s Mixed Record
Since the 1997 Asian crisis, the region’s other governments have had a mixed record in holding public servants to account, making growth more efficient, and creating the institutions -- independent judiciaries, central banks and media as well as freer watchdog groups -- needed to clean up political and economic systems. One way for Asian countries, home to a big share of the world’s households living on $2 per day, to boost their economies is to increase the pay of their civil servants.
Take Cambodia, which ranked at the bottom of a recent regional Transparency International corruption survey. Its government workers pad their paltry, sporadic pay by demanding bribes for everything from birth certificates to school grades. One oft-cited International Monetary Fund working paper argues that paying civil servants twice the wages of manufacturing workers is associated with a reduction in corruption. In Cambodia, civil servants make less than half what a garment worker makes.
In China, corruption is the common link between state-owned banks doling out billions of dollars to cronies; land grabs by local government officials; and the negligence that killed 40 people in a high-speed rail crash last July. If Beijing paid higher salaries, it might reduce the incidence of graft and rent-seeking that aggravates the lopsidedness of China’s development. Its Gini (DFIGCN) coefficient, an income-distribution gauge, has climbed to almost 0.5 from less than 0.3 a quarter-century ago.
Japan should consider fattening public paychecks, too. Although Japan’s best and brightest are still drawn by the prestige of a government career, over the past two decades the differential between private and public salaries has grown. Ministerial slush funds help make up the difference, and in recent years, numerous scandals have arisen involving bureaucrats using such money for limousines, louche excursions, and golf-club memberships.
More fundamentally, Japan’s economic model encourages dangerous collusion between the public and private sectors. The root of the problem is “amakudari,” or “descent from heaven.” It’s the main gravy train for public servants; when they retire, ministers and bureaucrats get cushy jobs in industries they oversaw while in government. The incentive is to look out for your future employer, not taxpayers.
Japan’s Rotten Example
Japan’s nuclear crisis, for example, was made worse by power-industry regulators focused on their post-government careers, not Japan’s 126 million people. Pledges by Japan’s ruling Democratic Party of Japan to abolish amakudari have gone unfulfilled. But for the sake of its citizens’ welfare, Japan needs to end the practice, perhaps in return for better salaries and pensions.
Of course, throwing money at corruption won’t make it go away. If it did, countries such as Kenya, which pays its members of Parliament handsomely -- more than $13,000 a month -- would be paragons of virtue instead of cellar-dwellers in Transparency International’s annual Corruption Perceptions Index. Decent salaries are just one incentive that can tilt the cost-benefit analyses of potential bribe-takers toward probity: More important than reducing the potential financial benefits of corruption is increasing the probability of detection and meaningful punishment.
Singapore isn’t exactly a hotbed of anti-corruption muckraking. According to the 2010 U.S. State Department Human Rights Report, journalists in Singapore practice “self- censorship,” the level of public debate is “moderate,” and opposition parties face “formidable obstacles.” Yet the city- state does have an aggressive Corrupt Practices Investigation Bureau; professional courts; a ramrod political will inculcated by its first prime minister, Lee Kwan Yew (father of Lee Hsien Loong); and a ruthless, relentless emphasis on efficiency and results.
Not every country can follow that recipe, especially those with larger, more diverse populations. Still, countries like Cambodia can start by auditing its public services to get a sense of how bad corruption really is -- something that it will have to do in any case to comply with the United Nations Convention Against Corruption. Civil-society groups can help greatly in that process: We think the UN would be wise to let them take part in the process it has created to review a country’s anti-corruption efforts.
Japan could benefit greatly from an independent watchdog agency to investigate corruption; given its global influence, we also don’t understand why it is one of only 35 countries yet to ratify the UN convention. And even if the huge internal challenges of fighting corruption in China risk tampering with the prerogatives of Communist Party control, the government could crack down on the pervasive bribe-mongering of Chinese companies overseas, which presents a huge global challenge.
There’s an old saying in Asia that the real money is in government. Not the paychecks, but the kickbacks. Isn’t it possible that a bit more capitalism at the highest levels of public service will make capitalism itself more efficient and equitable? We think Singapore proves it can.
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To contact the Bloomberg View editorial board: view@bloomberg.net.